There's more than one way to disrupt a market's status quo, and all forms of disruption aren't equally valuable, as indicated by the value created by Apple's iPhone compared to Google's Android platform.

Source: Intercom

Is Google disrupting Apple's disruption?

Every startup and business initiative likes to describe itself as being "disruptive," that is, an interrupting force that changes the prevailing nature of a given industry, shifting the balance of power and the identity of those making the most money.

Apple's iPhone has, since its debut in 2007, had a spectacularly disruptive effect on not only the smartphone market, but has also disrupted the revenues of parallel standalone devices, ranging from personal cameras and camcorders to dedicated game consoles and GPS products.

Particularly since 2010, observers who formerly dismissed and underestimated the impact of the iPhone have now jumped to the conclusion that Google's Android will, is, or perhaps already has had a similarly disruptive effect on Apple's future prospects, acting as a disruptor of Apple's disruption.

However, as noted in a report by the developers of Intercom, there's more than one type of disruption, and all forms of disruption aren't equally valuable, important, or sustainable.

Differentiating disruption

One form of disruption identified in the report is "new market disruption," which "competes against non-consumption." Essentially, this means bringing to market a new product that finds a new class of customers that weren't really being served by existing products.

In parallel, the report also describes the disruption of "sustaining technology," which it says involves "bringing a better product into an established market," where customers pay more to trade up to a premium product.

A third type of disruption is "low end distribution," which "addresses over-served customers with a low cost business model." In this form of disruption, customers who can get by with a cheaper alternative trade down to this new product to save money.

Apple has launched a series of products fitting all of these descriptions, creating entirely new markets that have also had a disruptive effect on existing industries, both with premium hardware and with lower cost software features that have eroded (or in some cases shattered) the profits supporting preexisting products.

Examples of different types of disruption

The iPod created a new volume of demand for premium music players, for example, one that really didn't exist before.

It initially appealed to the "most demanding customers," but newer, cheaper versions of iPod also undercut the low end of the market, reducing any pricing umbrella for Apple's competitors.

Together, those factors have enabled Apple to own the top, the middle and the bottom of the MP3 player business, and create the largest ecosystem of supporting content sales and related services around it with iTunes. Apple's global rollout of the iPhone hasn't yet addressed the low end of the market in the way the iPod mini and nano did.

The iPhone has also been disruptive on many levels. It initially introduced high-end smartphones to the mainstream to a new class of users. It also replaced existing leaders in the smartphone market (Nokia's Symbian, Palm, Microsoft's Windows Mobile and RIM's BlackBerry) with a better product.

However, Apple's global rollout of the iPhone hasn't yet addressed the low end of the market in the way the iPod mini and nano did.

Apple's cheapest iPhones are simply its older generations, and in this arena, Android licensees (along with other low end phones like select BlackBerry models and Nokia's S40-based Asha line of entry level phones) have taken more global market share, particularly in developing markets.

Grabbing the low end is easier, but not as valuable

While offering cheaper, low end smartphones is often also described as "disruption," the value of this "low end distribution" is clearly not as great as Apple's high end disruption, as evidenced by the fact that Apple earns so much more than the rest of the mobile industry combined.

At the same time, despite having ignored the bottom of the mobile phone market Apple has still managed to retain iPod-style ecosystem dominance over mobile apps and the usage stats that drive supporting accessory sales and specialty markets such as government, education and enterprise.

Taking over the low end of a market is a lot easier to do than attracting premium sales, as Apple demonstrated when it rapidly gobbled up the flash-based MP3 market with the iPod mini, in contrast to struggling efforts by the higher end Microsoft Zune and Samsung Galaxy Player to make any dent in Apple's premium iPod touch business.

Samsung is incessantly credited with "disrupting" the advance of Apple's iPhone and taking more market share via volume sales of lower end phone models. However, Apple could quite easily take the "market share trophy" simply by producing lots of low profit, low end phones and dumping them on the market.

However, doing that would make Apple much less profitable. Instead, Apple has targeted premium profitability, a strategy that has served it well over the past decade.

Samsung, Motorola, LG and other key Android licensees have also made shipping premium, higher end phones a priority. But as with the history of the iPod (mirrored in the PC world as well), Apple's competitors have found it a lot more difficult to take share in the lucrative high end than compete for the bottom.

This reality, which isn't really controversial at all, makes it particularly curious why the market is so enamored with smartphone market share (particularly when it comes through low value sales) rather than sustainable profitability.

It's as if everyone believes that the market for smartphones is going to work out completely different than the market for iPods and Macs and iPads, even though none of the available evidence (including profitability, ecosystem support, user preference and satisfaction) supports that idea.

Low end disruption isn't just less valuable, it's less sustainable

The vast resources at Apple's disposal make it obvious that, given the choice between earning profits and saturating the market with "device shipments" to gain market share, Apple is explicitly choosing to make money rather than to just set temporary sales records for the likes of IDC and Gartner.

Apple has the billions needed to manufacture profitless millions of iPhone 3GS units it could shove off the back end of cargo planes over India, Brazil, Africa and other regions where it would do little to threaten its existing iPhone sales, if the company simply wanted bragging rights to "market share shipments."

On top of that, in addition to being less profitable to aim for the bottom, such low end disruption is harder to sustain, particularly if the only factor in such disruption is low price. Just ask the world's former producers of netbooks (or cheap PCs of any form factor, for that matter). It's hard to survive in the cutthroat world at the bottom.

Flipping out of business

One example of the temporary nature of low end disruption cited in the report is Cisco's $590 million acquisition of Flip, which it described as once being the "darling of the camera industry" because its portable camcorders were a cheap, lower end alternative to more expensive camcorders, and subsequently appealed to lots of customers with basic video needs.

Unfortunately for Cisco, another low end disruption was also occurring: Apple's iPhone went from having no ability to record video to being a very competitive option for uses with simple needs. While even less powerful than some models of the Flip, smartphone camcorders were vastly more convenient because they didn't involve carrying another device.

Cisco's hopes to perpetuate Flip's success at tapping the bottom of the camcorder market collapsed because they were undermined by the ubiquity of even lower end disruption at the hands of smartphone video recording features.

Apple rapidly shifted from paying little attention to the original iPhone's camera to being the runaway market leader among cameras represented on sites like Flickr simply by incrementally improving the iPhone's camera and software.

Apple is also adept at low end disruption

While Apple hasn't yet decisively jumped into the low end of the smartphone pool with a cheap iPhone offering, it has ruthlessly undercut the bottom out of a variety of other markets, in some cases without even giving the appearance of trying.

In addition to Flip, the report drew particular attention to the collapse of GPS makers Garmin and TomTom, both of which saw their value evaporate once Apple's Maps app appeared. It didn't matter that Maps was less powerful than an standalone GPS.

Source: Google Finance

"In September 2007," the report noted, "[Garmin and TomTom] were worth a combined 38 billion dollars. A mere 12 months later, they weren?t even worth 8. What happened? The iPhone. A 38 billion dollar industry loses 3/4 of its market cap in a year because someone decide to add a maps app to the home screen."

Apple's iPhone has similarly eviscerated a series of other once important markets, including handheld video games. That's something Apple clearly didn't set out to do, but it happened anyway. And again, it occured without regard for the fact that dedicated games were more powerful and compelling than most iOS games.

It's worth noting that while the iPhone quickly sucked the life out of the older Nintendo DS and Sony PSP platforms that arrived a few years before it, new generations of those devices haven't had much success in winning back sales.

Clearly, it's much easier for a premium device to cut the bottom out of competitors' higher end offerings than it is for specialty, premium devices to compete against a device that serves as a hybrid disruptor, adept at both premium upselling and low end disruption at the same time.

Low end disruption is not disrupting Apple

At the same time, cheaper low end disruption by Android handsets hasn't had any discernible impact on Apple's App Store leadership. The only real software exclusive Android has cornered the market on is malware.

Outside of malware, the edge in market share claimed by the world's various Android licensees as a collective has not achieved the critical mass needed to blunt the development of iOS software or restrict the availability of sources of media content the way that Microsoft's overwhelming dominance in PC market share with Windows once had on the Mac platform.

In fact, the reality that Apple battled the Mac OS X platform back into relevance against the ubiquity of Windows PCs, starting with a market share around 2 percent and making gains in excess of ten percent of the current market tells you something about the weakness of the threat Android poses to iOS going forward: Apple remained highly profitable even with minority Mac market share; the majority of Android licensees are not, despite their collectively dominant share.

Low end disruption by iPad

Additionally, while Apple kept the Mac a healthy platform in the face of overwhelming low end disruption by budget PCs and netbooks, it was also able to rapidly slash the bottom of the PC market wide open with the release of the iPad three years ago.

iPad sales have, like the iPhone and iPod before it, competed as both high end premium alternatives that are attractive to "the most demanding customers" while at the same time offering software functionality that serves as low end disruptors.

Of particular interest to the enterprise, for example, is the fact that the iPad is cheaper to administer and maintain than more complex PC alternatives such as notebooks, netbooks, slate devices or Microsoft's curious Surface.

The iPad effectively delivers the utility of the PC in providing simple features (browsing the web, accessing email, consulting web services and corporate data) without the complexity or expense of maintaining a Windows desktop.

Despite two years of monumental efforts by the combined resources of Apple's global competitors, nobody has delivered a tablet that has challenged Apple's position. There are cheaper tablets, but they aren't gaining traction in high value markets, and they aren't sold at a sustainable profit because Apple's iPad prices are too competitive.

Apple will continue to disrupt smartphone sales

That fact should provide some clue to the future of the mobile industry as two situations continue to occur: first, Apple continues to gain ground in carrier distribution.

A major reason why Apple has less market share among smartphones than in music players and tablets is simply due to the fact that Apple has historically had far fewer points of distribution than the entrenched mobile manufacturers that existed before the iPhone.

That's not the case in the non-phone world, where Apple has stronger distribution for its computers, tablets and music players than most of its competitors, a fact that's reflected in its stronger sales.

Note too that in addition to carrier availability, rival smartphones have been losing exclusive features to the iPhone at a rapid pace: camcorder features, MMS, multicore chips, LTE and so on with each new iPhone generation. Yet as Apple's phone gets stronger and the competition loses ground, critics wail about it "not being able to keep up," pure flawgic.

A second shift that appears certain to occur sooner than later is that Apple will increasingly begin to aggressively address the low end of the smartphone market.

Apple hasn't entirely ignored this segment; each new iPhone release has been accompanied by lower cost versions of previous generations, reaching the point where the company finally began offering a "free with contract" iPhone for the first time just a year and a half ago.

Analysts who are banging the drum that Apple desperately needs a cheap iPhone are forgetting that the company has been working in that direction for a long time.

More importantly, it's not a goal that needs to be reached in an emergency, because taking the low end is quite easy for anyone who already has the top of the market under control, as Apple demonstrated with the iPod and again with iPad.

When Apple failed at distruption: a lesson for Android

There's one further example of the difficulty of disrupting from the bottom: it comes from Apple itself.

When the company tried to break into the enterprise server and storage market with the 2005 Xserve and Xserve RAID, it attempted to leverage its Mac OS X Server platform to deliver equipment that could rival the higher end offerings of rack mounted server room equipment.

Apple hoped to undercut established PC server vendors, including Dell and HP, by offering a server package that delivered comparable hardware with vastly cheaper software than Windows Server, resulting in a much lower price overall.

Apple's Xserve never established much of a market for itself, in part because the company lacked the hands on support services that enterprise-savvy vendors like Dell provided to their satisfied customers (just like Android!).

XServe RAID was canceled even earlier because the NAS market wasn't at all impressed by lower prices; they preferred the assurance of acquiring drives rated for true enterprise duty, rather than the consumer-class disks Apple was trying to sell them as cheaper and "good enough."

The logic supporting Android's eventual domination of smartphones through cheaper, lower end hardware paired with with less friendly end user support and less sophisticated, but much cheaper software is soundly refuted by the results of Apple's own failed attempts to enter the server room through the bottom of the market.

Apple hasn't repeated the same mistake in any of its other hardware categories. Conversely, there aren't any Android licensees that are successfully rivaling Apple on the high end. That draws a very close parallel between Android's future prospects and Apple's singular high profile failure to disrupt a major new market over the past decade.

The xServe example is a great one. I have always been baffled by the failure of xServe to make a dent in the market - considering how much cheaper it is. I don't buy the 'cheap drives' argument - One could buy an xServe and replace all the drives with 'enterprise level' drives and still be far less than half the cost of a Windows system.

Clearly, the Enterprise market is extremely averse to change - but even that doesn't explain everything. After all, Linux has made huge inroads into the Windows server business - and OS X has many of the advantages of Linux. Sure, the xServe hardware is a bit more expensive than equivalent cheap generic hardware, but the difference is very minor.

"I'm way over my head when it comes to technical issues like this"Gatorguy 5/31/13

Apple has one thing left to do to truly become independent with the best platform in the world.

...and that is to provide it's own default search engine and perhaps make Google a search an option like Bing and Yahoo.

Once that is done, it will have full control of it's platform and a much better integrated search engine.

Apple's Market Disruption Savvy comes from its research teams, but also from it's independence in platform integration and design.

Apple can make its moves without asking permission, and when a technology needed for an Apple product does not exist, it gets invented and patented.

Agreed. An Apple search engine couldn't come soon enough. I'm sick of using Google I am even resorting to using Blekko, though it's ability to provided me the results I require sometimes does not cut it (though other times it is markedly better).

The xServe example is a great one. I have always been baffled by the failure of xServe to make a dent in the market - considering how much cheaper it is. I don't buy the 'cheap drives' argument - One could buy an xServe and replace all the drives with 'enterprise level' drives and still be far less than half the cost of a Windows system.

Clearly, the Enterprise market is extremely averse to change - but even that doesn't explain everything. After all, Linux has made huge inroads into the Windows server business - and OS X has many of the advantages of Linux. Sure, the xServe hardware is a bit more expensive than equivalent cheap generic hardware, but the difference is very minor.

Well the server market has become a commodity market mainly because they are all designed to run VMWare to support Linux and Windows.

I believe Apple has a internal project going with VMWare that could lead to OS X running on virtualized Apple server hardware. (i.e. Fusion on steroids)

The Apple cloud applications (iCloud.com) are few and they currently only run at Apple Data Centers but they will grow in numbers and capability.

They could potentially be sold to businesses for private Clouds in the future.

Imagine an upgraded version running in the backend on virtualized Apple Hardware supporting all the new Apple and open platform technologies and Apple development tools. (HTML5, Objective-C, X-Code, Core Data, Core Animation, OpenGL, Mapping, Siri, Searching, iWork, iMessage, iTunesU, iTunes, iBooks, FaceTime, AirPlay etc...) That would certainly disrupt the enterprise computing world as we know it today.

Well the server market has become a commodity market mainly because they are all designed to run VMWare to support Linux and Windows.
I believe Apple has a internal project going with VMWare that could lead to OS X running on virtualized Apple server hardware. (i.e. Fusion on steroids)
The Apple cloud applications (iCloud.com) are few and they currently only run at Apple Data Centers but they will grow in numbers and capability.
They could potentially be sold to businesses for private Clouds in the future.

Time will tell.

That might make sense - except for the fact that they dropped the xServe product. If they really planned to do anything with it in the future, you'd think they'd have kept it around - even if it was on life support. I don't recall many times (if any) when they discontinued a product and then brought it back later.

"I'm way over my head when it comes to technical issues like this"Gatorguy 5/31/13

Enterprise is ruled by the IT departments of the world. The IT departments of the world never, ever even looked at XServe as a serious alternative. It did not help matters that XServe was an unproven system that actually had many issues for those who did adopt it. Not sure it makes a good comparison to Android.

Some points
1 - This is the first article I see that points out how weak Androids position as the "low end market leader" really is. I always wondered why this wasn't mentioned. Android's low end rule always was just a cheap iPhone away form being a non-issue. Apple demonstrated that it can own all price points with the iPod. Great point.

2 - Android's other advantages are: Distribution - here, I don't see Apple catching up in markets like SE Asia where phones are sold in the majority by little tech shops in the malls. None of those little shops carry iPhones. Most never carried iPods either. Apple doesn't seem to have a good model to deal with those mom and pop operations. The effect is that in SE Asia for every iPhone on display, there are about 100 Android phones on display. That's got to have an effect on sales. iPhone success so far has been despite distribution issues.

3 - Second - the low end experience catching up to the high end. I can get a huge screen phone from Samsung for half the price of an iPhone, that does nearly everything nearly as good. The Galaxy grand is basically a cheaped down version of an SGS4 - it's a SGS2 with a 5" screen. Samsung for that matter is under constant attack by Huawei, ZTE, and lots of other cheap Chinese makes. This would be fatal if Apple decided to stick with the high end exclusively.

I don't think they will though - like the author, I think that Apple's next disruption will come in the form of a cheap iPhone. Killing their own margins in order to remain king of the hill - it's never going to be an easy decision but I trust that Apple has the foresight to do it now, and they obviously have the production chops to pull it off. Apple can produce cheaper than the cheapest of the cheap Chinese clone makers - how much they sell their devices for depends on how much of a margin they want to maintain. It's a good position to be in.

45% margins never were a long play. They were an artifact of not being able to keep up with demand. I hope Apple didn't get too used to it.

DED specifically cites and links to that report. And he adds to what is there. (Perhaps one quibble might be that he could also have made an attribution to the TOM/GRMN chart from that article, instead of creating a new one).

Originally Posted by AppleInsider
Apple's Xserve never established much of a market for itself, in part because the company lacked the hands on support services that enterprise-savvy vendors like Dell provided to their satisfied customers (just like Android!).

When viewed in context with the other sentence that does this, it appears as though you're saying Android provides support to its satisfied customers, when in actuality I think you're saying the opposite. So shouldn't it be something like this?

Apple's Xserve never established much of a market for itself. While enterprise-savvy vendors—like Dell—provided hands on support services that satisfied customers, Apple did not (just like Android!).

That might make sense - except for the fact that they dropped the xServe product. If they really planned to do anything with it in the future, you'd think they'd have kept it around - even if it was on life support. I don't recall many times (if any) when they discontinued a product and then brought it back later.

Big businesses don't buy small servers like X-Serve anymore, they buy racks and racks of blade chassis or big 32 or more way servers with integrated ethernet and fiber network switches for data and SAN storage and then they use VMWare to carve them up. Smaller businesses just rent VMs from Amazon and others.

Apple is populating the world with its iOS and OS X clients right now, it could later on offer private cloud solutions to businesses that simply work better with Apple clients, are easier to manage and easier to develop for.

I was at AT&T yesterday upgrading my mom from a feature phone to the iPhone 5 and I witnessed this in action. A middle-aged woman walked in the door and even though there was a sea of Android devices that were bigger, newer, and bidding for her attention, she was on a mission. She bought the iPhone 4 with 8GB; just what her son wanted. Apple can take this market if it wants; it remains to be seen whether they want to enter it seriously or not. To Author: Great points, by the way, in every respect

One way to address the lower end market is not through new products at all, but just by making your manufacturing more and more ruthlessly efficient, which is Tim's speciality (well used to be in his old role anyway).

They linked to that article at least but it does take large chunks of the source text. Any excuse to keep pushing 'flawgic' into mainstream adoption. We're going to need the word flawpinion at some point too though.

Quote:

Originally Posted by AppleSauce007
Well the server market has become a commodity market mainly because they are all designed to run VMWare to support Linux and Windows.
I believe Apple has a internal project going with VMWare that could lead to OS X running on virtualized Apple server hardware.

I don't know how recently the change in the license agreement happened but it couldn't have been before July 2011 as it's only Lion and higher. The XServe was discontinued in 2006 so lack of virtualization could have contributed to it being killed off.

There are other things to hold back server adoption of Apple hardware and software though. If you have to be using command-line utilities anyway then you'd be as well using Linux, you don't need new hardware and you get familiar control panels as well as loads of support staff experienced in it. As soon as you got an issue with an Apple server, you know that if you send in a support request, you'll get some uppity support technician who wants nothing to do with Apple products and passes you onto a 'specialist' even though it's probably the same steps on Linux.

For the foreseeable future, the Mini and Pro are going to be Apple's presence in the Server market. It's actually a pretty smart thing to do. For under $1000, you can get a Mini capable of virtualizing at least 8 VPS users and you can see the monthly rates above. It's a good business model and the Mini takes up hardly any space and uses hardly any power.

Quote:

Originally Posted by AppleInsider
Analysts who are banging the drum that Apple desperately needs a cheap iPhone are forgetting that the company has been working in that direction for a long time.

Many of the analysts featured in articles published on AI no less. This article counters it very well though and has been put together nicely IMO.

The core point is very important. The market disruption Apple caused with the iPhone was immense because not only did they bring something totally new to the table, the products quickly became competitively priced, which is a killer combination. The disruptive strategy adopted by Windows and Android is cheapness and ubiquity at the expense of quality. Sometimes market volume has a profound effect and did on the Mac market for a long time but the key with iOS is that it's not the difference between a $500 laptop and an $1800 laptop, it's the difference between a $200-500 phone and a $300-600 phone. The price difference isn't that high now. That's why, regardless of Android's growth rates, total iOS and Android units ever sold are not that far apart.

Apple can't ever go to the low profit or no profit model of selling devices like Amazon and Google because hardware is where they make their profit. What is interesting is that when you look at something like the iPad mini, once you take away the profit margin, the price is almost identical to a Nexus 7 and Galaxy Tab, which shows that Apple can build a higher quality product for the same cost. If Apple decided to replicate their business model, the competition would really struggle to match them.

What should be most damaging to Apple's competition is that they've failed to one-up Apple. They've had nearly 6 years now to do it and all we see are people deciding to replicate and undercut. It's never innovation that sustains a higher price, it's always The Next Best Thing. People notice that difference and it's where Sony failed. They stopped putting out a quality difference that sustains a higher price.

There are other things to hold back server adoption of Apple hardware and software though. If you have to be using command-line utilities anyway then you'd be as well using Linux, you don't need new hardware and you get familiar control panels as well as loads of support staff experienced in it. As soon as you got an issue with an Apple server, you know that if you send in a support request, you'll get some uppity support technician who wants nothing to do with Apple products and passes you onto a 'specialist' even though it's probably the same steps on Linux.

This may be true however, as I see it, the main reason that the Xserve did not catch on in the data center is that professional IT people found Apple's management console unfamiliar and you needed to do it only with another Mac. Certified Apple technicians were taught nothing but the management console and strongly discouraged from using the command line for anything. Windows CNE people didn't like it and the UNIX people didn't like it either, even from a command line perspective because Apple moved many of the default file locations so they became frustrated trying to find things. Along with the small market share for Apple Xserve, almost no enterprise IT thought it was worthwhile integrating it into their environment because of the management learning curve and lack of available certified Apple techs, who often knew nothing about any other operating systems, so it was not cost effective even though the hardware cost was reasonable.

Even in my case where I was familiar with OS X I found the management console confusing. Perhaps once you get used to using command line a GUI management console becomes cumbersome where as to a novice it might make more sense.

When Daniel describes Apple's "low end disruption" of the market, I think he's mostly dreaming or twisting things around to fit his own opinion. Apple rarely if ever engages in classic "low end" market disruption. Specifically, when he describes Apple's inclusion of the camera in the iPhone as low end disruption of Flip's camera market he's really got it backwards.

"Disruption" is a strategy and by definition, intentional. The Flip camera was itself, a classic low end disruption of the camera market. One simple, cheap, and easy to use device took the place of what was at the time many hundreds of dollars worth of more complicated equipment that was actually quite difficult to use. It was a purposeful act to try and capture a huge segment of the digital video camera market and it worked.

Apple's intentions in putting the best camera they could into the iPhone on the other hand, were more along the lines of integration. They are making a multi-functional device that subsumes entire other categories of device and in the process, eliminating markets. They are not trying to conquer markets with a flood of low priced, substitute devices in the classic low end disruption manner. I think it's a gross mischaracterisation to say that this is "low end disruption."

The only time I can think of when Apple have deliberately engaged in low end disruption is when they close off the "price umbrella" at the end of the game, when the market is completely mature (as with the iPod). Once they have taken all the cream from the top and also dominated the middle ground to the point that their product becomes almost signatory of the category itself, then they expand down to the lower market by making a device for all price/use points (as with the iPod).

It could very well be that the market has arrived at this point for the iPhone and they are about to disrupt "downwards" with a cheap iPhone, but I've yet to see anyone make a good case for what this product would be, what features it would have, how it would sell, and who would buy it.

Generally, the thing I think people are seriously forgetting when they compare this situation to iPod domination, is that even the smallest iPod maintained all the music playing functions of it's larger fancier siblings. The larger ones simply did things better, and did some more things besides playing music. This is not the case with iPhones.

A cheaper iPhone will still need to access the app store, and will still need all the same connectivity options. It will still need the same kind of screen, and run the same kind of apps. There would be nothing to differentiate it other than cheaper materials and slower internals. Since they already have this with their current strategy, and since it's hard to see why anyone would buy an expensive iPhone if they could get more or less the same thing for half the price, I still don't see what the actual use case is for the cheaper iPhone.

The only thing that makes sense to me, (and the only thing that would be a true low end disruption), would be a true iPhone nano, or "feature phone" that actually *doesn't* run app store apps and just has a few basic built-in ones running on a smaller screen and a completely different form factor.

I hope that this year is a big turn around for Apple, because honestly, I've been a bit underwhelmed lately. I think that Apple still wins on the quality bar for their devices - even software aside, Apple makes the best laptops (although I think Lenovo does better keyboards, Lenovo does terrible displays), and tablets and phones.

The iPhone's getting kind of boring though - it's nice, solid hardware - but I've been switching back and forth between the iPhone 5 and a Galaxy Nexus, and honestly, I'm starting to prefer the Galaxy Nexus for its software. They're experimenting a bunch with UI, with data, and while I don't think that it's as refined as iOS, there's some very exciting stuff going on there, especially with the various Google apps such as Google Now.

I worry that the big thing where Apple will lose is intelligent data. Can Apple make a Maps app that's as good as Google's? Can they make a compelling intelligent service like Google Now? I don't know. I think that five years from now, as these services get more integrated, Google's expertise in data analysis and intelligence could very much beat out Apple's expertise in user experience. And I think right now, Google is getting better at UX faster than Apple is getting better at data.

I mean, I think that Apple and Google will have long, healthy existence, but the next five years are going to be very interesting, because the war is far from decided yet.

I think you misunderstood Daniel's point, which is taken from the original Intercom report. As a matter of fact, the point is better explained in the report itself, so I urge you to follow the link and read it.

The essence of this particular argument is that, disruption at the low-end is not necessarily due to price--in fact, cannot be through price alone--but by offering a product to a market segment that is over-served. That is, the customers do not notice or care about the lower quality of the product, and therefore prefer it due to its lower cost, convenience, or lower barriers to adoption. When this happens, the market shifts to the new offering, at the expense of the established ones.

To illustrate, Intercom compares a high-end hotel like the Four Seasons to a roadside motel. The latter is certainly cheaper, but will never disrupt the former. That is because in order to attract the customers of the Four Seasons, the motel must adopt its model of highly trained staff, improved grounds, and upscale services; which would force it to adopt its cost structure, and by consequence, lose its price advantage. The two can certainly co-exist, but one does not affect the other.

In contrast, Apple disrupted the market of low-end cameras by offering an even lower-cost solution than the Flip. As the report says, it is important to understand that "cost" in this context represents "cost of use," which may include convenience, lower price, ease of use, and other lower barriers to usage. At once, the market dropped the Flip and adopted the iPhone as the most popular consumer camera. Again, it did not matter that it was a poorer product in quality (at least at first).

I just read the entire article and I have to say that it is nothing more than clickbait/fanboism/wishful thinking.

Apple blew a huge lead in the phone industry and there's nothing to prevent the same thing happening to the tablet industry. iOS is so very very stagnant and locked down. In 2007/8 it was awesome. Now? Meh.

The iPhone's getting kind of boring though - it's nice, solid hardware - but I've been switching back and forth between the iPhone 5 and a Galaxy Nexus, and honestly, I'm starting to prefer the Galaxy Nexus for its software.

Personally, I would never consider an Android phone even if it is a very nice phone, simply because I value the Apple ecosystem too much. I would not be willing to give up the integration between my iPad, iPhone, iMac, MBP, Apple TV, Mac Pro, iTunes, App store, iMessage, AirPlay, back to my Mac, etc. Even FaceTime and Find my iPhone, which I have yet to use still make a compelling case for sticking with Apple.

"... provide it's own default search engine ..." Agreed. Google lives on the mystique of search. But Google search is sophisticated to further its own purposes, not ours. Ninety percent of searches are abysmally simple and not rocket surgery.

Personally, I would never consider an Android phone even if it is a very nice phone, simply because I value the Apple ecosystem too much. I would not be willing to give up the integration between my iPad, iPhone, iMac, MBP, Apple TV, Mac Pro, iTunes, App store, iMessage, AirPlay, back to my Mac, etc. Even FaceTime and Find my iPhone, which I have yet to use still make a compelling case for sticking with Apple.

The ecosystem is definitely an issue, but I'm not going to give Apple a pass just because they've got me locked in. And honestly, it hasn't been as bad as I thought it would be. Contacts in particular are a big annoyance, since as far as I know they can't easily be maintained across two phones. Dropbox fixes a lot of the data issues, and most of the apps that I use have now Android versions as well and are just account based. Certainly hiccups here and there, but not terrible.

Everything that can be digitised will be digitised, as the saying goes. And that's how to predict Apple's next market: the next logical thing that could be done by computer (and in that I include the iPhone) that is not currently.

I think going after non-pro cameras was a very deliberate and calculated move by Apple and not just an afterthought. I remember at each iPhone keynote, they lingered on the camera, and talked about the new lens made of polished sapphire, or the new intelligent image processing chip they had added, or some new software feature of the camera app. They knew cameras were the next logical thing to get absorbed in to computers. They even made a standalone digital camera in the 90s but it was too soon.

I never understood why Apple didn't use it's own servers to populate it's own installations. It probably would have helped cut down the cost by increasing volume, and would have given confidence to customers. I bet Dell uses it's own servers.

The ecosystem is definitely an issue, but I'm not going to give Apple a pass just because they've got me locked in. And honestly, it hasn't been as bad as I thought it would be. Contacts in particular are a big annoyance....

Really? No AppleTV, No iTunes, No iPhoto, no Airplay, no iTunes Match, no cross-product compatibility (e.g., keeping my music files synced perfectly between all my iPads, iPhones, iPods, Macs), no GarageBand, no FaceTime, no Find My iPhone...... you just glossed over all else that he mentioned?

I am guessing you probably were not much of an Apple user to begin with.

I just read the entire article and I have to say that it is nothing more than clickbait/fanboism/wishful thinking.

Apple blew a huge lead in the phone industry and there's nothing to prevent the same thing happening to the tablet industry. iOS is so very very stagnant and locked down. In 2007/8 it was awesome. Now? Meh.

"realitycheck" for realitycheck:

It's an Editorial. It's *going* to be opinionated to some degree, and possibly controversial.

Apple rules customer satisfaction with an iron fist, ever since the first iPhone. In fact, Apple rules Customer Satisfaction across ALL of their major product lines, year after year. With only a few phone models they are able to split the mobile industry between themselves and Samsung. They are the #1 smartphone-manufacturer in the US (the Platinum market, where your product *must* do well in order to gain substantial traction elsewhere), and they rule smartphone industry profits.

I can't think of how your notion of a "blown lead" applies here. There is no way that Apple can (or intends to) compete with a whored-out, universally-licensed OS that any fly-by-night OEM that can slam together a box can use. I think Apple is perfectly happy to *not* be in a race for the bottom, and evidently, so is the Consumer.

iOS JUST WORKS. End of story. It's elegant, simple, proven, STABLE, and very well-supported by Apple. The apps are more polished, the headliner apps are better by an order of magnitude, and we don't even need to mention malware, because it's a non-issue on iOS.

And honestly, it hasn't been as bad as I thought it would be. Contacts in particular are a big annoyance, since as far as I know they can't easily be maintained across two phones.

I don't understand which side of the argument this is taking. My unlocked iPhone 4, for international use and my iPhone 5 for the US keep the contacts synced just fine. Also one other major iPhone feature I forgot to mention earlier, which I use all the time, is Visual Voicemail. When I see one of my contacts in the list, versus some random phone number, you can bet I will listen to my contact's message first.

I hope that this year is a big turn around for Apple, because honestly, I've been a bit underwhelmed lately. I think that Apple still wins on the quality bar for their devices - even software aside, Apple makes the best laptops (although I think Lenovo does better keyboards, Lenovo does terrible displays), and tablets and phones.

The iPhone's getting kind of boring though - it's nice, solid hardware - but I've been switching back and forth between the iPhone 5 and a Galaxy Nexus, and honestly, I'm starting to prefer the Galaxy Nexus for its software. They're experimenting a bunch with UI, with data, and while I don't think that it's as refined as iOS, there's some very exciting stuff going on there, especially with the various Google apps such as Google Now.

You may want to actually look into what Apple's ecosystem can actually offer users...

Can Apple make a Maps app that's as good as Google's? Can they make a compelling intelligent service like Google Now? I don't know. I think that five years from now, as these services get more integrated, Google's expertise in data analysis and intelligence could very much beat out Apple's expertise in user experience. And I think right now, Google is getting better at UX faster than Apple is getting better at data.

None of that is true or accurate. Apple makes the best mapping app. They made the best mapping app with the original iPhone in 2007 and jumped even further ahead with the best mapping app in 2012 with Apple Maps on iOS 6.0.

What you're referring to are the back-end services that connect to the app but failed to comment on how Apple's lack of turn-by-turn and vector maps before iOS 6.0 was due to Google not allowing it for the iOS while they offered it up for Android.

So what were the options Apple had before them in 2012? Resign a multi-year contract that allows Google to offer better services to its platform as a means of screwing iOS or cut ties with Google Maps even to offer a better app and services even if there are some temporary hiccups and issues with Apple's own mapping backend? Seems to me Apple made the only wise choice afforded to them. You can say both options are poor but you can't realistically say Apple made the wrong choice.

It's not as if iOS users are lacking additional mapping options to chose from so it appears it's a win-win for Apple in the long run.

This bot has been removed from circulation due to a malfunctioning morality chip.

DED specifically cites and links to that report. And he adds to what is there. (Perhaps one quibble might be that he could also have made an attribution to the TOM/GRMN chart from that article, instead of creating a new one).

I don't understand which side of the argument this is taking. My unlocked iPhone 4, for international use and my iPhone 5 for the US keep the contacts synced just fine. Also one other major iPhone feature I forgot to mention earlier, which I use all the time, is Visual Voicemail. When I see one of my contacts in the list, versus some random phone number, you can bet I will listen to my contact's message first.

I mean, syncing contacts from an Android phone to an iOS phone and back again is not trivial.

The iPhone has lots of great features, don't get me wrong, it's a fantastic platform - I didn't intend to say otherwise. Not taking any side really, just sharing my experience switching back and forth between the iPhone 5 and Galaxy Nexus. At my heart, I'm a gadget lover - I love seeing new things, new paradigms, and so on :). Although on the topic of voice mail, on Android there are apps which are pretty similar to visual voice mail and even convert voice mails to text (and they do a pretty good job) which is an awesome time saver. So like I said, Android's still a pretty clunky platform in a lot of ways, but a lot has been done to close the gap in recent years.

Yet as Apple's phone gets stronger and the competition loses ground, critics wail about it "not being able to keep up," pure flawgic.

I think the tech blogosphere and legacy tech journalists had this pent-up urge to write "Apple has fallen" stories. Just like they've written about once-great companies like IBM, Sun Microsystems, Silicon Graphics, and yes, Apple in the late 90s. You've seen those stories. They start with shocking statistics, they jump back in time to the company's origin story and meteoric rise to greatness, they highlight the company's fatal flaw, then conclude with the grim details of the company's decline. In short, "Oh how the mighty have fallen. And aren't we clever and witty and relevant for writing such artful and irony-enhanced prose."

Well guess what happened. Apple didn't fail. The tech writers all expected Apple's nouveau empire, built on iMac, to fail after a few years. It didn't. Then they expected the iPod + iTunes juggernaut to saturate the market, cease to expand, and leave Apple's profits in a holding pattern. It happened, but not until Apple completely disrupted the cell phone industry (and the pocket-sized video camera industry, and the portable gaming industry, and the handheld GPS gadget industry among many others.) iPod sales didn't begin declining until iPhone revenue had become Apple's major revenue stream. And now Apple owns 75% of all revenue in the mobile telephone industry. All areas of the industry.

Even worse for the doom-and-gloom writer crowd, Apple is now pioneering the post-PC era. The press does get to write their "Oh how the mighty have fallen" essays, but not about Apple. They write them about other tech giants and their utter failure to either follow Apple (read: "copy Apple") or to blaze their own trails with differentiated products (read: "ship products designed by their legal team"). The press is already tired of writing about Palm's decline into HP's patent portfolio. And RIM's collapse and incompetent flailing. And Microsoft's repeated failures in mobile, from Windows Mobile to Tablet PC to Zune to KIN to Surface. Plenty of abject failure, loss, and decline into irrelevance to write about here. But not about Apple.

And the post-PC era could last for decades. Writers will have grown old and retired before iPad and its competitors are replaced by some future post-post-PC next-next-generation computing device. So, roughly a year ago, this particular train of thought ran through the mind of some editor-in-chief out there:

"All this Apple success is boring our readers. And our writers. And we need page hits. What to do? What to do?"

"F**k it. We'll run a piece about Apple's decline anyway. Just to see what happens. Yeah, that's the ticket."

So the first Apple is Doomed piece is published, it generates clicks, it gets tons of comments, it is linked to by all the blogs (including AppleInsider) and the publisher reaps the benefits of increased web traffic. So another such story is published to the same effect. And another. And those decades of Apple-Doom-Anticipation find a release. Floods of Apple-Doom stories hit the webs, whether or not they make any sense. Simply because they generate hits. Tech writers finally understand (or fall victim to, or are rampantly exploiting) the John Dvorak Syndrome. Relentless, mindless Apple-Doom stories, whether or not they contain any rational thoughts, generating hits for the sake of generating hits.

The media, even old-guard establishments once highly regarded for their journalistic integrity, have degenerated into the "nation of bloggers" that Steve Jobs lamented. Sophistry instead of critical thinking and accurate reporting. Double-check facts? Feh. That takes time, and taking time means you'll get scooped. And anyway, sensational fallacious arguments generate more page views. And page views are all that matter in online journalism.

2 - Android's other advantages are: Distribution - here, I don't see Apple catching up in markets like SE Asia where phones are sold in the majority by little tech shops in the malls. None of those little shops carry iPhones. Most never carried iPods either. Apple doesn't seem to have a good model to deal with those mom and pop operations. The effect is that in SE Asia for every iPhone on display, there are about 100 Android phones on display. That's got to have an effect on sales. iPhone success so far has been despite distribution issues.

"After a slow start, Apple's iPhone has jumped to India's second largest smartphone supplier by pushing phones to Mom-and-Pop shops in the world's fastest growing smartphone market.

"Apple's success has been attributed to its ability to adapt to India's smartphone distribution market, where most electronics are sold through small, family-owned shops. Mobile phones in India are not subsidized by telecom operators, unlike other parts of the world."